TABLE OF CONTENTS

PART I

PART I

Note About Forward-Looking Statements

The SECSecurities and Exchange Commission (“SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions.  Certain statements in this Annual Report on Form 10-K, including that which relatesthose relating to the impact on future revenue sources, pending and future regulatory orders, continued expansion of the telecommunications network and expected changes in the sources of our revenue and cost structure resulting from our entrance into new communications markets, are forward-looking statements. Forward-lookingstatements and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995.  These forward-looking statements reflect, among other things, our current expectations, plans, strategies and anticipated financial results.  There are a number of risks, uncertainties and conditions that may cause our actual results to differ materially from those expressed or implied by these forward-looking statements.  Many of these circumstances are beyond our ability to control or predict.  Moreover, forward-looking statements necessarily involve assumptions on our part.  These forward-looking statements generally are identified by the words “believe”, “expect”, “anticipate”, “estimate”, “project”, “intend”, “plan”, “should”, “may”, “will”, “would”,“estimate,” “project,” “intend,” “plan,” “should,” “may,” “will, be”,” “would,” “will be,” “will continue” or similar expressions.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Consolidated Communications Holdings, Inc. and its subsidiaries (“Consolidated,” the “Company,” “we” or “our”) to be different from those expressed or implied in the forward-looking statements.  All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements that appear throughout this report.  A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward–looking statements is included in the section entitledPart I – Item 1A – “Risk Factors” (refer to Part I, Item 1A).   Furthermore, forward-looking statements speak only as of the date they are made.  Except as required under the federal securities laws or the rules and regulations of the Securities and Exchange Commission,SEC, we disclaim any intention or obligation to update or revise publicly any forward-looking statements. YouUndue reliance should not place undue reliancebe placed on forward-looking statements.

Item 1.Business.

Consolidated Communications Holdings, Inc. (the “Company”, “we” or “our”) is a Delaware holding company with operating subsidiaries (collectively “Consolidated”) providing a wide range ofthat provide integrated communications services to residentialin consumer, commercial and business customerscarrier channels in California, Illinois, Iowa, Kansas, Minnesota, Missouri, North Dakota, Pennsylvania, South Dakota, Texas Pennsylvania, California, Kansas and Missouri.Wisconsin.  We were founded in 1894 as the Mattoon Telephone Company by the great-grandfather of one of the members of our Board of Directors, Richard A. Lumpkin.  After several acquisitions, the Mattoon Telephone Company was incorporated as the Illinois Consolidated Telephone Company (“ICTC”) on April 10, 1924.  We were incorporated under the laws of Delaware in 2002, and through our predecessors, we have provided telecommunicationsbeen providing communications services in many of the communities we serve for more than a century.  Through strategic acquisitions over the last decade,

In addition to our focus on organic growth in our commercial and carrier channels, we have grown ourachieved business diversified ourgrowth and a diversification of revenue and cash flow streams andthat have created a strong platform for future growth.growth through our acquisitions over the last decade.  Our strategic approach into evaluating potential transactions includeincludes analysis of the market opportunity, the quality of the network, our ability to integrate the acquired company efficiently and the potential for creating significant operating synergies and agenerating positive cash flow at the inception of each acquisition.  The operatingOperating synergies are created through the use of consistent platforms, convergence of processes and functional management of the combined entities.  We measure our synergies during the first two years following an acquisition.  For example, the acquisition of our Texas properties in 2004 tripled the size of our business and gave us the requisite scale to make system and platform decisions that would facilitate future acquisitions.  For theThe acquisition of our Pennsylvania properties wein 2007 achieved synergies in excess of $12.0 million in annualized savings, which at the time, represented aboutapproximately 20% of their operating expense.  During the first full year following theThe acquisition of SureWest Communications wein 2012 achieved synergies of $29.5 million during the two years subsequent to the acquisition date.  Our acquisition of Enventis Corporation (“Enventis”) in excess of $23.4 million and we believe we will continue to achieve furtherOctober 2014 generated annual operating synergies inof approximately $17.0 million during the second year post acquisition.  Wefirst two years subsequent to the acquisition date.  Through these acquisitions, we have positioned our business to provide services in both rural, suburban and suburbanmetropolitan markets, with service territories spanning the country.

We offerThrough our advanced fiber optic network and multiple data centers, we provide a wide range of telecommunicationscommunication services including local and long-distance service,products that include, high-speed broadband Internet access, video services, digital telephone service (“VOIP”), custom calling features,voice services, private line services, carrier grade access services, network capacity services, over our regional fiber optic networks, a comprehensive suite of cloud services, data center and managed services,

directory publishing Competitive Local Exchange Carrier (“CLEC”) services and equipment sales.    Consolidated is dedicated to turning technology into solutions, connecting people and enriching how its customers work and live.

Recent Business Developments

Acquisitions

FairPoint Communications, Inc.

On December 3, 2016, we entered into a definitive agreement and plan of merger (the “Merger Agreement”) with FairPoint Communications, Inc. (“FairPoint”) to acquire all the issued and outstanding shares of FairPoint in exchange for shares of our common stock.  FairPoint is an advanced communications provider to business, wholesale and residential customers within its service territory, which spans across 17 states.  FairPoint owns and operates a robust fiber-based network with more than 21,000 route miles of fiber, including 17,000 route miles of fiber in northern New England.  This pending acquisition reflects our strategy to diversify revenue and cash flows amongst multiple products and to expand our network to new markets.  The merger is subject to standard closing conditions including the approval of our stockholders and FairPoint’s stockholders, the approval of the listing of additional shares of Consolidated common stock to be issued to FairPoint’s stockholders, required federal and state regulatory approvals and other customary closing conditions.  We historically operatedexpect the merger to close by mid-2017.

Enventis Corporation

On October 16, 2014, we completed our business as two separate reportable segments: Telephone Operationsmerger with Enventis, an advanced communications provider, which services consumer, commercial and Other Operations.  Based on changeswholesale carrier customer channels primarily in the upper Midwest.  The financial results for Enventis have been included in our business structure, duringconsolidated financial statements as of the quarter ended June 30, 2013 we concluded that we operate our business as one reportable segment. acquisition date. 

See Note 3 to the Recent Business Developments section belowconsolidated financial statements included in this report in Part II – Item 8 – “Financial Statements and Supplementary Data” for a more detailed discussion regarding the circumstances that resulted in the change to our segment reporting.of these transactions.

1

the future.  We continue to focus on commercial and broadband growth opportunities and are continually expanding our commercial product offerings for both small and large businesses to capitalize on industry technological advances.  We can leverage our fiber optic networks and tailor our services for business customers by developing solutions to fit their specific needs.  We provide services to a wide range of commercial customers from sole proprietors and other small businesses to multi-location corporations and telecommunications carriers.  Our business suite of services includes local and long-distance calling plans, hosted voice videoservices using cloud network servers, the added capacity for multiple phone lines, scalable broadband Internet, online back-up and business directory listings.  In addition, we recently launched a suite of cloud services and an enhanced hosted voice product that increases efficiency and enables greater scalability and reliability for businesses. 

For larger businesses, we offer data services including dedicated Internet access through our Metro Ethernet network.  Wide Area Network (“broadband services”WAN”) products include point-to-point and multi-point deployments from 2.5 Mbps to residential and10 Gbps, accommodating the growth patterns of our business customers.  Revenues increased $123.7 million during 2013 comparedOur data centers provide redundant, scalable bandwidth over a self-healing fiber-optic backbone that is protected by uninterrupted power supplies and generator back-ups with direct connection to 2012, primarily from the SureWest acquisitionbroadband.  We also offer wholesale services to regional and growth in data, videonational interexchange and Internet connections. We expect our broadband service revenueswireless carriers, including cellular backhaul, dark fiber and other fiber-based transport solutions with speeds up to continue to grow as consumer and business demands for data based services increase.100 Gbps.

We market our services to our residential and business customers either individually or as a bundled package.  Our “triple play” bundle includes our voice, video and data services.  As the market demands for bandwidth continue to increase as a result of December 31, 2013,consumer trends toward increased Internet usage, our videocontinued focus is on enhancing product and service was availableofferings, such as our progressively increasing consumer data speeds.   We offer data speeds of up to approximately 531,000 homes1 Gbps in select markets.    Where 1 Gbps speeds are not yet offered, the markets we serve, with an approximate 21% penetration rate.maximum broadband speed is 100 Mbps, depending on the geographic market availability.  As of December 31, 2013,2016, approximately 28% of the homes in the areas we had approximately 110,613 video subscribers, a 4% increaseserve subscribe to our data service.  Our exceptional consumer broadband speed allows us to continue to meet the needs of our customers and the demand for higher speed resulting from 2012. During 2013, we launchedthe growing trend of over-the-top (“OTT”) content viewing.  The availability of 1 Gbps data speed also complements our wireless home networking (“Wi-Fi”) that supports our TV Everywhere whichservice and allows our subscribers to watch their favorite programs at home or away on a computer, smartphone or tablet.  Data and Internet connections continue to increase as a result of enhanced product and service offerings, such as our consumer VOIP service and data speeds of up to 50 megabits per second, depending on the geographic market availability. As of December 31, 2013, approximately 30% of the homes in the areas we serve subscribe to our data service. Our voice services provide local and long-distance calling and other features such as hosted voice services using cloud network servers, a business directory listing and the added capacity for multiple phone lines are made available to our business voice customers. For our small to medium sized business customers, we also offer metro Ethernet network services and wireless backhaul services.

A discussion of factors potentially affecting our operations is set forth in Part I – Item 1A – “Risk Factors” in Item 1A,, which is incorporated herein by reference.

Key Operating Statistics

(1)Voice connections include voice lines outside the Incumbent Local Exchange Carrier (“ILEC”) service areas and Voice-over-IP inside the ILEC service areas.

(2)These connections include both residential and business (excluding SureWest business metrics) for services both inside and outside the ILEC service areas.

3

Sources of Revenue

The following table summarizes our sources of revenue for the last three fiscal years:

The comparability of our consolidated results of operations and key operating statistics was impacted by the SureWestEnventis acquisition whichthat closed on July 2, 2012,October 16, 2014, as described above.  SureWest’sEnventis’ results are included in our consolidated financial statements as of the date of the acquisition.  The acquisition of SureWest provides additional diversification of the Company’s revenues and cash flows both geographically and by service type.

Sources of Revenue

The following table summarizes our sources of revenue for the last three fiscal years:

All telecommunications providers continue to face increased competition as a result of technology changes and industry legislative and regulatory developments. In recent years, changesdevelopments in consumer demand and our acquisition of SureWest have provided us with significantthe industry.  We continue to focus on commercial growth opportunities and are continually expanding our commercial product offerings for both small and large businesses to capitalize on industry technological advances.  In addition, we expect our video, data and Internet services.  As indicated by the table above, the percentage of operating revenues we receive from our video, data and Internetbroadband services has nearly doubled since 2011.  We anticipate that video, data and Internet revenues willrevenue to continue to grow as consumer and commercial demands for data based services increase, as a total percentage of operating revenues andwhich will offset, in part, the anticipated decline in traditional telephonevoice services which continue to be impacted by the ongoing industry-wide declinereduction in residential access lines.

Local calling servicesCommercial and Carrier

Local calling services include traditional wireline telephone serviceData and other basic services.  Our service plans include options for voicemail and other enhanced custom calling features including caller ID, call forwarding and call waiting.Transport Services are charged at a fixed monthly rate or can be bundled with selected services at a discounted rate.

We offer private lines that provide direct connections between two or more local locations at flat monthly rates.  We provide a variety of business communication services to small, medium and large business customers, including many services over our advanced fiber network.  The services we offer include scalable high speed broadband Internet access and VoIP phone services, which range from basic service plans to virtual hosted VOIPsystems.  Our hosted VoIP package which utilizes aour soft switchswitching technology and allows the customerenables our customers to have the flexibility of utilizingemploying new telephone technologyadvances and features without investing in a new telephone system.  The package bundles local service, calling features, Internet protocol (“IP”) business telephones and unified messaging, which integrates multiple messaging technologies into a single system whichand allows the customer to receive and listen to voice messages through email.

Network accessIn addition to Internet and VoIP services, we also offer a variety of commercial data connectivity services in select markets including private line, WAN and Ethernet services to provide high bandwidth connectivity across point-to-point and multiple site networks.  Networking services are available at a variety of speeds up to 10 Gbps.  Data center and disaster recovery solutions also provide a reliable and local colocation option for commercial customers.  We have also recently launched a suite of cloud-based services, which includes a hosted unified communications solution that replaces the customer’s on-site phone systems and data networks, managed network security services and data protection services.

Network access service revenues include interstateWe also offer wholesale services to regional and intrastate switched access revenuenational interexchange and network special access services.  Revenue from network access charges are received from long-distancewireless carriers, including cellular backhaul, dark fiber and other carriers for customers originating or terminating calls from/fiber transport solutions with speeds up to our local exchanges.  These services allow customers to make or receive calls in our service area.  Our long-distance customers typically pay a monthly flat-rate fee for this service.  In addition, other carriers pay network access charges for their originating or terminating calls within our service areas.  These charges also apply to private lines that connect a customer in one of our service areas to a location outside of our service areas. Through these dedicated lines customers can transmit data and access external data networks.  We also provide cell site backhaul services to wireless carriers.100 Gbps.  The demand for backhaul services continues to grow as wireless carriers are faced with escalating consumer and businesscommercial demands for wireless data. Certain

Video, Data and Internet servicesVoice Services

Video, dataVoice services include basic local phone and Internetlong-distance service packages for business customers.  The plans include options for voicemail, conference calling, linking multiple office locations and other custom calling features such as caller ID, call forwarding, speed dialing and call waiting. Services can be charged at a fixed monthly rate, a measured rate or can be bundled with selected services at a discounted rate.  

Consumer

Broadband Services

Broadband services include revenue from residential and business customers for subscriptions to our VoIP, data and video and data products.  Our data service can provide high-speedWe offer high speed Internet access at various symmetrical speeds of up to 50 megabits per second (“Mbps”),1 Gbps, depending on the nature of the network facilities that are available, the level of service selected and the geographic market availability.location.  Our data service plans also include wireless internet access, email and internet security and protection.  Our VoIP digital phone service is also available in certain markets as an alternative to the traditional telephone line.  We also offer a variety of data connectivity services in

4

Subsidies 

Subsidies consist of both federal and state subsidies, which are designed to promote widely available, quality telephone service at affordable prices in rural areas.  Subsidies come from poolsare funded by end user surcharges to which we and other telecommunications providers, including local, long-distance and wireless carriers, contribute on a monthly basis.  Subsidies are allocated and distributed to participating carriers monthly based upon their respective costs for providing local service.  Similar to access charges, subsidies are regulated by federal and state regulatory commissions.  See Part I – Item 1 -– “Regulatory Environment” below and Item 1A – “Risk Factors – Regulatory Risks”Risks Related to the Regulation of Our Business” for additional informationfurther discussion regarding the subsidies we receive.receive”.

Long-distance servicesNetwork Access Services 

Long-distanceNetwork access services include traditional domesticinterstate and international long distance which enablesintrastate switched access revenue, network special access services and end user access.  Switched access revenue includes access services to other communications carriers to terminate or originate long-distance calls on our network.  Special access circuits provide dedicated lines and trunks to business customers and interexchange carriers.  Certain of our network access revenues are based on rates set or approved by federal and state regulatory commissions or as directed by law that are subject to make calls that terminate outside their local calling area.  These services also include calling cards, toll free calls and conference calling.  We offer a variety of long-distance plans, including unlimited flat-rate calling plans and offer a combination of subscription and usage fees.

Other serviceschange at any time.

Other Products and Services

Other products and services include revenues from telephone directory publishing, wholesale transport services on our fiber-optic network in Texas,video advertising and billing and collection services, inside wiring service and maintenance and equipment sales (“Business Systems”).  Business Systems sells and supports telecommunications equipment, such as key, private branch exchange (“PBX”) and IP-based telephone systems, to business customers.  We are an Avaya and ShoreTel distributor.support services.

No customer accounted for more than 10% of our consolidated operating revenues during the years ended December 31, 2016, 2015 and 2014.

Wireless partnershipsPartnerships

In addition to our core business, we also derive a significant portion of our cash flow and earnings from investments in five wireless partnerships.  Wireless partnership investment income is included as a component of other income in the consolidated statements of income.operations.  Our wireless partnership investment consistedconsists of five cellular partnerships: GTE Mobilnet of South Texas Limited Partnership (“Mobilnet South Partnership”), GTE Mobilnet of Texas RSA #17 Limited Partnership (“RSA #17”), Pittsburgh SMSA Limited Partnership (“Pittsburgh SMSA”), Pennsylvania RSA No. 6(I) Limited Partnership (“RSA 6(I)”) and Pennsylvania RSA No. 6(II) Limited Partnership (“RSA 6(II)”).

We own 2.34% of the Mobilnet South Partnership.  The principal activity of the Mobilnet South Partnership is providing cellular service in the Houston, Galveston and Beaumont, Texas metropolitan areas.  Because we have a minor ownership interest and cannot influence operations, we account for this investment using the cost basis.method.  Income is recognized only upon cash distributions of our proportionate earnings in the partnership.

We own 20.51% of GTE Mobilnet of Texas RSA #17, which serves areas in and around Conroe, Texas. In December 2012, we purchased additional ownership interest for $6.7 million which increased our ownership from 17.02% to 20.51%.  Because we have some influence over the operating and financial policies of this partnership, we account for the investment under the equity method, recognizing income on our proportionate share of earnings.  Cash distributions are recorded as a reduction in our investment.

5

Employees

AtAs of December 31, 2013,2016, we employed approximately 1,5211,676 employees, including part-time employees.  We also use temporary employees in the normal course of our business.

Approximately 28%20% of our employees were covered by collective bargaining agreements as of December 31, 2013.2016.  For a more detailed discussion regarding how the collective bargaining agreements could affect our business, see Part I - Item 1A – “RiskRisk Factors – Risks“Risks Relating to Our Business”.

Customers and Markets

Our services are available to customers in six states:  Illinois, Texas, Pennsylvania, California, Kansas and Missouri.  The geographic areas we serve are characterized by a balanced mix of growing suburban areas and stable, rural territories.  The acquisition of SureWest in 2012 further diversifies our operating revenues and cash flows across multiple business lines and markets.

Our Illinois local telephone markets consist of 35 geographically contiguous exchanges serving predominantly small towns and rural areas.  We cover an area of 2,681 square miles, primarily in five central Illinois counties: Coles, Christian, Montgomery, Effingham and Shelby.  As of December 31, 2013, we had total connections of 103,717, which included 56,757 local access lines (averaging 21.2 lines per square mile). Approximately 61.3% of our Illinois local access lines serve residential customers, with the remainder serving business customers.  Our Illinois business customers are predominantly small retail, commercial, light manufacturing and service industry businesses, as well as universities and hospitals.

Our 21 exchanges in Texas serve three principal geographic markets—Lufkin, Conroe and Katy—in a 2,054 square mile area.  This territory had 114,090 local access lines (averaging 55.5 lines per square mile) and 70,731 data connections as of December 31, 2013.  Approximately 67.0% of our Texas local access lines serve residential customers, with the remainder serving business customers.  Our Texas business customers predominately operate in the manufacturing and retail industries; our largest business customers are hospitals, local governments and school districts.  In 2014, we will expand our commercial services into the greater Dallas/Fort Worth market utilizing our existing 30,000 miles of carrier-class fiber network in this area.  This network previously was used to serve our wholesale and carrier customers.  Beginning in 2014, we will begin offering fiber based services including dedicated internet access, wide area networks and hosted iPBX to commercial customers in this market.

The Lufkin market is centered primarily in Angelina County in east Texas, approximately 120 miles northeast of Houston, and extends into three neighboring counties.  The Conroe market is located primarily in Montgomery County and is centered approximately 40 miles north of Houston.  Parts of the Conroe operating territory extend south to within 28 miles of downtown Houston, including parts of the affluent suburb of The Woodlands.  The Katy market is located in parts of Fort Bend, Harris, Waller and Brazoria Counties and is centered approximately 30 miles west of downtown Houston along the busy and expanding I-10 corridor.  Most of the Katy market is considered part of metropolitan Houston.

Our Lufkin, Texas and central Illinois markets have experienced only nominal population growth over the past decade.  These low growth, low customer density markets, along with the predominantly rural residential character of these areas, have limited the number of product offerings from potential competitors in these areas.  The Conroe and Katy markets have experienced above-average population and business employment growth over the past decade as compared to the remainder of Texas and the United States as a whole.

6

residential and enterprisecommercial customers.  Our fiber network utilizes fiber-to-the-home (“FTTH”) and fiber-to-the-node (“FTTN”) networks to offer bundled residential and commercial services.

As a result of our advanced networks, we provide data and video service in the markets we serve. We leverage our high definition head-end equipment to distribute content across our network allowing the Company to better manage costs of future channel additions and upgrades.  As of December 31, 2013, video service was available to approximately 531,000 homes in our markets up from 524,019 at December 31, 2012.  Our video subscriber base continues to grow and now totals 110,613 connections at December 31, 2013 as compared to 106,137 at December 31, 2012.  We do not anticipate having to make any material capital upgrades to our network infrastructure in connection with the continued growth of our video product except for providing set-top boxes to future subscribers and additional high definition channel equipment.

In our CLEC markets, we operate fiber networks which we own or have entered into long-term leases for fiber network access.  Our CLEC’s operateAt December 31, 2016, our fiber-optic network consisted of approximately 3,00014,160 route-miles, of fiber, which includes approximately 2,0004,565 miles of fiber network in Minnesota and surrounding areas, approximately 4,130 miles of fiber network in Texas, approximately 6001,800 route-miles of fiber-optic facilities in the Pittsburgh metropolitan area, approximately 3501,815 miles of fiber network in Illinois, approximately 1,085 route-miles of fiber optic facilities in California that cover large parts of the greater Sacramento metropolitan area and over 60765 route-miles of fiber optic facilities in Kansas City that service the greater Kansas City area, including both Kansas and Missouri.  Our CLEC operations provide both residential and commercial services.  Residential service includes VOIP, data and video service. ForIn 2014, we expanded our commercial services we sell competitive wholesale capacity oninto the greater Dallas/Fort Worth market, utilizing our existing carrier-class fiber network in this area.  This network previously was used to otherserve our wholesale and carrier customers.  With the expansion of the network, we began offering fiber based services including dedicated Internet access, wide area network services and hosted private branch exchange (iPBX) to commercial customers in this market.    

Through our extensive fiber network, we are also able to support the increased demand on wireless carriers wireless providers, CLECs and large commercial customers.  We also provide carrier hotel space andfor data center space in the various markets we serve.bandwidth.  In all the markets we serve, we have launched initiatives to support fiber backhaul services to cell sites.  As of December 31, 2013,2016, we had 7881,271 cell sites under contract with 6981,119 connected and 90152 scheduled for completion in 2014.2017.

Business Strategies

Diversify revenues and increase revenues per customer

We continue to transform our business and diversify our revenue streams as we adapt to changes in the regulatory environment and advances in technology.  As a result of acquisitions, our wireless partnerships and increases in the consumer and commercial demand for data services, we continue to reduce our reliance on subsidies and access revenue.  Utilizing our existing network and strategic network expansion initiatives, we are able to acquire and serve a more diversified business customer base and create new long-term revenue streams such as wireless carrier backhaul services.  We will continue to focus on growing our broadband and commercial services through the expansion and extension of our fiber network to communities and corridors near our primary fiber routes where we believe we can offer competitive services and increase market share.

We also continue to focus on increasing our revenue per customer, primarily by improving our data and video market penetration, by increasing the sale of other value-added services and by encouraging customers to subscribe to our service bundles.

Improve operating efficiency

We continue to seek to improve operating efficiency through technology, better practices and procedures and through cost containment measures. Our current focus is on the further integration of SureWest into our existing operations and creating operating synergies for the combined company.  In recent years, we have made significant operational improvements in our business through the centralization of work groups, processes and systems, which has resulted in significant cost savings and reductions in headcount.  Because of these efficiencies, we are better able to deliver a consistent customer experience, service our customers in a more cost-effective manner and lower our

8

Pursue selective acquisitions

We have in the past taken, and expect to continue to take in the future, a disciplined approach in pursuing company acquisitions. When we evaluate potential transactions, important factors include:

We believe all of the above criteria werewill be met in connection with our expected acquisition of SureWest CommunicationsFairPoint in 2012.2017.  In the long term, we believe that this transaction giveswill give us additional scale and will better positionsposition us financially, strategically and competitively to pursue additional acquisitions.

Competition

The telecommunications industry is subject to extensive competition, andwhich has increased significantly in recent years.  Technological advances have expanded the types and uses of services and products available.  In addition, differences in the regulatory environment applicable to comparable alternative services have lowered costs for these competitors.  As a result, we face heightened competition but also have new opportunities to grow our broadband business.  Our competitors vary by market and may include other incumbent and competitive local telephone companies; cable operators offering video, data and VOIPVoIP products; wireless carriers; long distance providers; satellite companies; Internet service providers and in some cases new forms of providers who are able to offer a broad range of competitive services through software applications, requiring a small initial investment.services.  We expect competition to remain a significant factor affecting our operating results and that the nature and extent of that competition will continue to increase.  See Part I - Item 1A – “Risk Factors – Risks Relating to Our Business”.

Voice, data and video service

In recent years, competition in our incumbent service areas has increased significantly.  Except for the traditional multichannel video delivery business, which requires significant capital investment to serve customers, the barriers to entry are not high and technology changes force rapid competitive adjustments.  Depending on the market area, we compete against AT&T and a number of other carriers, as well as Comcast, Time Warner, Mediacom, Armstrong, Suddenlink and NewWave communications,Communications, in both the businesscommercial and residentialconsumer markets.  Google also recently launched data and video services in a limited, but growing, number of service areas including the Kansas City market.  Our competitors offer traditional telecommunications services as well as IP-based services and other emerging data-based services. Our competitors continue to add features and adopt aggressive pricing and packaging for services comparable to the services we offer.

We continue to face significant competition from wireless and other fiber data providers as the demand for substitute communication services, such as wireless phones and data devices, continues to increase.  Customers are increasingly foregoing traditional telephone services and land-based Internet service and relying exclusively on wireless service.  In addition, the expanded availability for free or lower cost services, such as video over the Internet, and complimentary Wi-Fi service in an increasing number of commercial venuesand other streaming devices has increased competition among other providers including online digital distributors for our video and data services.

In most cases, we have entered the cable television service markets as the operator of a second (or subsequent) cable system.  Therefore, we face the challenge of drawing customers away from the incumbent cable service provider. Similarly, the possession of comparatively greater size and scale can give an incumbent cable competitor an advantage in both access to and pricing of the program content needed to operate a cable television business.  

9

In our rural markets, services are more costly to provide than service in urban areas as a lower customer density necessitates higher capital expenditures on a per-customer basis.  As a result, it generally is not economically viable for new entrants to overlap existing networks in rural territories.  Despite the barriers to entry, rural telephone companies still face significant competition from wireless providers, cableand video providers and, to a lesser extent, competitive telephone companies.

Other competition

Our other lines of business are subject to substantial competition from local, regional and national competitors.  In particular, our directory publishingwholesale and transport businesses operate inbusiness serves other interexchange carriers and we compete with a variety of service providers including incumbent and competitive markets.  local telephone companies and other fiber data companies.  For our business systems products, we compete with other equipment providers or value added resellers, network providers, incumbent and competitive local telephone companies and with cloud and data hosting service providers.

We expect that competition in all of our businesses will continue to intensify as new technologies and new services are offered.changes in consumer behavior continue to emerge.

Regulatory Environment

The following summary does not describe all existing and proposed legislation and regulations affecting the telecommunications industry.  Regulation can change rapidly, and ongoing proceedings and hearings could alter the manner in which the telecommunications industry operates.  We cannot predict the outcome of any of these developments, nor their potential impact on us.  See Part I —Item 1A—“Risk– Item 1A – “Risk Factors—Regulatory Risks”Risks Related to the Regulation of Our Business”.

Overview

Our revenues, which include revenues from such telecommunications services as local telephone service, network access service and toll service, are subject to broad federal and/or state regulation and are derived from various sources, including:

The telecommunications industry is subject to extensive federal, state and local regulation.  Under the Telecommunications Act of 1996 (the “Telecommunications Act”), federal and state regulators share responsibility for implementing and enforcing statutes and regulations designed to encourage competition and to preserve and advance widely available, quality telephone service at affordable prices.

At the federal level, the Federal Communications Commission (“FCC”) generally exercises jurisdiction over facilities and services of local exchange carriers, such as our rural telephone companies, to the extent they are used to provide, originate or terminate interstate or international communications.  The FCC has the authority to condition, modify, cancel, terminate or revoke our operating authority for failure to comply with applicable federal laws or FCC rules, regulations and policies.  Fines or penalties also may be imposed for any of these violations.

State regulatory commissions generally exercise jurisdiction over carriers’ facilities and services to the extent they are used to provide, originate or terminate intrastate communications.  In particular, state regulatory agencies have substantial oversight over interconnection and network access by competitors of our rural telephone companies.  In addition, municipalities and other local government agencies regulate the public rights-of-way necessary to install and operate our networks.  State regulators can sanction our rural telephone companies or revoke our certifications if we violate relevant laws or regulations.

Federal regulationRegulation

Our rural telephone companies and competitive local exchange companies must comply with the Communications Act of 1934, which requires, among other things, that telecommunications carriers offer services at just and reasonable rates and on non-discriminatory terms and conditions.  The 1996 amendments to the Communications Act (contained in the Telecommunications Act discussed below) dramatically changed, and likely will continue to change, the landscape of the industry.

Removal of Entry Barriers

The central aim of the Telecommunications Act is to open local telecommunications markets to competition while enhancing universal service.  Before the Telecommunications Act was enacted, many states limited the services that could be offered by a company competing with an incumbent telephone company.  The Telecommunications Act preempts these state and local laws.

The Telecommunications Act imposes a number of interconnection and other requirements on all local communications providers.  All telecommunications carriers have a duty to interconnect directly or indirectly with

10

Intrastate network access charges are regulated by state commissions.  NetworkThe FCC order on intercarrier compensation and universal service reform required state access charges in our Illinois market currentlyto mirror interstate access charges, for everything except local switching. Illinois law requires that ourand as of July 1, 2013, all switched intrastate access charges may not exceed ourmirror interstate access charges.  Interstate and intrastate network access charges in our Pennsylvania market are also very similar.  In contrast, as required by Texas regulators, our Texas rural telephone companies impose significantly higher network access charges for intrastate calls than for interstate calls.

The FCC regulates the prices we may charge for the use of our local telephone facilities to originate or terminate interstate and international calls.  The FCC has structured these prices as a combination of flat monthly charges paid by customers and both usage-sensitive (per-minute) charges and flat monthly charges paid by long-distance or other carriers.

The FCC regulates interstate network access charges by imposing price caps on Regional Bell Operating Companies referred to as RBOC’s, and other large incumbent telephone companies.  These price caps can be adjusted based on various formulas, such as inflation and productivity, and otherwise through regulatory proceedings.  Incumbent telephone companies, such as our local telephone companies, may elect to base network access charges on price caps, but are not required to do so.  All of our incumbent telephone companies have elected for price cap regulation.

11

the incumbent telephone companies and made it easier for customers to shift their business to other carriers.  After a court challenge and a decision vacating portions of the UNE rules, the FCC issued revised rules in February 2005 that reinstated some unbundling requirements for incumbent telephone companies that are not protected by the rural exemption, but eliminated the UNE-P option and certain other unbundling requirements.

Each of the subsidiaries through which we operate our local telephone businesses is an incumbent telephone company and provides service in rural areas.  As discussed above, the Telecommunications Act exempts rural telephone companies from certain of the more burdensome interconnection requirements.  However, the Telecommunications Act provides that the rural exemption will cease to apply as to competing cable companies if and when the rural carrier introduces video services in a service area.  In that event,area, in which case, a competing cable operator providing video programming and seeking to provide telecommunications services in the area may interconnect.  Since each of our subsidiaries now providesprovide video services in their major service areas, the rural exemption no longer applies to cable company competitors in those service areas.  Additionally, in Texas, the Public Utilities Commission of Texas (“PUCT”) has removed the rural exemption for our Texas subsidiaries with respect to telecommunications services furnished by Sprint Communications, L.P. on behalf of cable companies.  Our ILEC subsidiaries in California, Illinois, Iowa, Minnesota and Pennsylvania still have the rural exemption in place. We believe the benefits of providing video services outweigh the loss of the rural exemptions to cable operators.

Under its current rules, the FCC has eliminated unbundling requirements for ILECs providing broadband services over fiber facilities, but continues to require unbundled access to mass-market narrowband loops.  ILECs are no longer required to unbundle packet switching services.  In addition, the FCC found that CLECs generally are not at a disadvantage at certain wire center locations in regard to high bandwidth (DS-1 and DS-3) loops, dark fiber loops and dedicated interoffice transport facilities.  However, where a disadvantage persists, ILECs continue to be required to unbundle loops and transport facilities.

The FCC rules regarding the unbundling of network elements did not have an impact on our Illinois and Pennsylvania ILEC operations because these ILECs have rural exemptions.  Our CLEC operations were not significantly affected by the 2005 changes to the UNE rules because they use their own switching for business customers that are served by high capacity loops.  In July 2011, ourOur Pennsylvania CLEC renewed, for a three-year term,has a commercial agreement with Verizon that sets the terms of the pricing and provisioning of lines previously served utilizing UNE-P, including Verizon switching service.  Less than 5% of our Pennsylvania CLEC access lines are provisioned utilizing this commercial arrangement.  Although the costs for this arrangement will increase over time pursuant to the terms of the agreement, our relatively low use of Verizon’s switching and our ability to migrate some of the lines to alternative provisioning sources will limit the overall impact on our current cost structure.  The CLEC has experienced moderate increases in the overall cost to provision high-capacity loops, interoffice transport facilities and dark fiber as a result of the FCC’s changes to unbundling requirements for those facilities.  In December 2012, our subsidiary Consolidated Communications Enterprise Services, Inc. (“CCES”), entered into a 5-year wholesale special access agreement with AT&T, which moved us off of the UNE platform, reduced costcosts and gave us greater flexibility.  This agreement applies to our CLEC operations in California, Illinois, Kansas, Missouri and Texas.

In 2006, Verizon filed a petition requesting that the FCC refrain from applying a number of regulations to the Verizon operations in six major metropolitan markets, including the Pittsburgh market area.  Among other things, Verizon urged the FCC to forbear from applying loop and transport unbundling regulations, claiming there was sufficient competition in the Pittsburgh market to mitigate the need for these rules.  The FCC denied Verizon’s petition in December 2007, but a federal court of appeals remanded this decision to the FCC for further analysis in 2009.  If the FCC grants this remanded petition or any similar forbearance petitions in markets in which our CLEC operates, our cost to obtain access to loop and transport facilities would increase substantially for the 5%, or less, of the lines provisioned under the commercial agreement discussed above.  In 2013, AT&T filed to amend its interstate access tariff with the FCC to eliminate the 5-year term discounts on its special access services.  We filed a petition to reject AT&T’s filing, and on December 9, 2013, the FCC suspended AT&T’s filing for five months forpending investigation.  The FCC has not yet issued a ruling in this matter. 

13

areas.  We received $52.0Revenues from federal and certain states’ USFs totaled  $48.4 million, $56.3 million and $49.3$53.2 million from the Federal Universal Service Fund, the Pennsylvania Universal Service Fundin 2016, 2015 and the Texas Universal Service Fund in 2013 and 2012,2014, respectively.

Federal Universal Service Fund subsidies are paid only to carriers that are designated eligible telecommunications carriers (“ETCs”), by a state commission.  Each of our rural telephone companies have been designated an ETC.  However, under FCC rules prior to 2008, competitors could obtain the same level of Federal Universal Service Fund subsidies as we do, per line served, if the applicable state regulator determined that granting such Federal Universal Service Fund subsidies to competitors would be in the public interest and the competitors offered and advertised certain services as required by the Telecommunications Act and the FCC.  The Illinois Commerce Commission (“ILCC”) has granted several petitions for ETC designations, but to date no other ETCs are operating in our Illinois service area.  We are not aware that any carriers have filed petitions to be designated an ETC in our Pennsylvania or Texas service areas.  In May 2008, the FCC adopted an interim cap on payments to ETCs that are not incumbent telephone companies, based on the payments received by such companies in March 2008, which reduces (but does not eliminate) the incentive for ETCs to seek to compete against our rural telephone companies.

In order for ETCsan eligible telecommunications carrier (“ETC”) to receive high-cost support, the USF/Inter CarrierIntercarrier Compensation (“ICC”) Transformation Order requires states to certify on an annual basisannually that federal universal service high-costUSF support (“USF”) is used “onlyonly for the provision, maintenance and upgrading of facilities and services for which the support is intended”.intended.  States, in turn, require that ETCs file certifications with them as the basis for the state filings with the FCC. Failure to meet the annual data and certification deadlines can result in reduced support to the ETC based on the length of the delay in certification.  Each of our rural telephone companies has been designated as an ETC. For the calendar year 2013, the California state certification was due to be filed with the FCC on or before October 1, 2012. We were notified in January 2013 that SureWest Communications (“SureWest”) did not submit the required certification to the California Public Utilities Commission (“CPUC”) in time to be included in its October 1, 2012 submission to the FCC.  OnIn January 24, 2013, we filed a certification with the CPUC and filed a petition with the FCC for a waiver of the filing deadline for the annual state certification. OnIn February 19, 2013, the CPUC filed a certification with the FCC with respect to SureWest. OnIn October 29, 2013, the Wireline Competition Bureau of the FCC denied our petition for a waiver of the annual certification deadline.  OnIn November 26, 2013, we applied for a review of the decision made by the FCC staff by the full Commission.  Management believes,is optimistic that the Company may prevail in its application to the Commission and receive USF funding for the period January 1, 2013 through June 30, 2013 based on the change in SureWest Telephone’sSureWest’s USF filing status caused by the change in the ownership of SureWest, Telephone, the lack of formal notice by the FCC regarding this change in filing status, the fact that SureWest Telephone had a previously-filedpreviously filed certification of compliance in effect with the FCC for the two quarters for which USF was withheld and the FCC’s past practice of granting waivers to accept late filings in similar situations, that the Company should prevail in its application to the Commission and receive USF funding for the period January 1, 2013, through June 30, 2013.situations. However, due to the denial of our petition by the Wireline Competition Bureau and the uncertainty of the collectability of the previously recognized revenues, in December 2013 we reversed the $3.0 million of previously recognized revenues until such time that the Commission has the opportunity to reach a decision on our application for review.  In October 2016, the FCC denied our request for review and, in December 2016, we filed a petition for review of this denial with the United States Court of Appeals for the District of Columbia Circuit.  The proceeding is currently pending.

FCC Access Charge and Universal Service Reform Order

In November 2011, the FCC released itsa comprehensive order on Access Chargeaccess charge and Universal Service Reformuniversal service reform (the “Order”).  The access charge portion of the Order systematically reduces minute of use basedminute-of-use-based interstate access, intrastate access and reciprocal compensation rates over a six to nine year period to an end state of Bill and Keep,bill-and-keep, in which each carrier recovers the costs of its network through charges to its own subscribers, notrather than through intercarrier compensation.  The reductions apply to terminating access rates and usage, whilewith originating access willto be addressed by the FCC in a later proceeding.  To help with the transition to Bill and Keep,bill-and-keep, the FCC created two mechanisms.  The first is an Access Recovery Mechanism (“ARM”) which is funded from the Connect America Fund (“CAF”), and the second is an Access Recovery Charge (“ARC”) which is recovered from the end users.  The universal service portion of the Order shifts the national policy goalredirects support from voice serviceservices to broadband services, and is now called the CAF.  InThe initial release of the Order mandated that, in order to receive CAF funding, carriers must agree to provide broadband capability to 100% of their customer base at a minimum speed of 4 Mbps downstream and 1Mbps upstream. The current high cost

14

exceeds CAF Phase I funding, the transitional support is waived and CAF Phase II funding begins immediately. Companies are required to commit to a statewide build out requirement to 10 Mbps downstream and 1 Mbps upstream in funded locations. We accepted the CAF Phase II funding in August 2015.  The annual funding under CAF Phase I of $36.6 million was replaced by annual funding under CAF Phase II of $13.9 million through 2020.  With the sale of our Iowa ILEC in 2016, this amount was further reduced to $11.5 million through 2020. The acceptance of funding at the lower level for CAF Phase II will transition over a three year period, beginning in August 2015, at the rates of 75% of the CAF Phase I funding level in the first year, 50% in the second year and 25% in the third year.

The annual reporting requirements include (i) filings of annual certifications that the carrier is both meeting its public interest obligations and is offering comparable broadband rates and (ii) the filing of a Service Quality Improvement plan. The initial plan must be filed by July 1, 2016, with progress reports filed every year thereafter.  The plan must include, among other things, the total amount of CAF Phase II funding used to fund capital expenditures in the previous year and certification that the carrier is meeting the required interim deployment milestones.

State Regulation

California

The CPUC has the power, among other things, to establish rates, terms and conditions for intrastate service, to prescribe uniform systems of accounts and to regulate the mortgaging or disposition of public utility properties.

In an ongoing proceeding relating to the New Regulatory Framework, the CPUC adopted Decision 06-08-030 in 2006, which grants carriers broader pricing freedom in the provision of telecommunications services, bundling of services, promotions and customer contracts.  This decision adopted a new regulatory framework, the Uniform Regulatory Framework (“URF”), which among other things (i) eliminates price regulation and allows full pricing flexibility for all new and retail services, (ii) allows new forms of bundles and promotional packages of telecommunication services, (iii) allocates all gains and losses from the sale of assets to shareholders and (iv) eliminates almost all elements of rate of return regulation, including the calculation of shareable earnings.  OnIn December 31, 2010, the CPUC issued a ruling to initiate a new proceeding to assess whether, or to what extent, the level of competition in the telecommunications industry is sufficient to control prices for the four largest ILECs in the state.  Subsequently, the CPUC issued a ruling temporarily deferring the proceeding.  The status on whenWhen the CPUC may open this proceeding is unclear and on hold at this time. The CPUC’s actions in this and future proceedings could lead to new rules and an increase in government regulation.  The Company will continue to monitor this matter.

Illinois

Our Illinois rural telephone company holds the necessary certifications in Illinois to provide long-distance and payphone services.  We are required to file tariffs with the ILCCIllinois Commerce Commission (“ILCC”) or post written service offerings on its website, but generally can change the prices, terms and conditions stated in its tariffs on one day’s notice, with prior notice of price increases to affected customers.  Our CLEC services are not subject to any significant state regulations in Illinois.

Our Illinois rural telephone company is certified by the ILCC to provide local telephone services.  This entity operates as a distinct company from a regulatory standpointstandpoint. As described below, Consolidated Communications of Illinois Company (formerly known as Illinois Consolidated Telephone Company) (“CCIL”) has elected the option under Illinois law to have its rates, terms and conditions of service subject to market regulation, meaning it is regulated under a rate of return system for intrastate revenues.by competition in the market.  Although, as explained above, the FCC has preempted certain state regulations pursuant to the Telecommunications Act, Illinois retains the authority to impose requirements on our Illinois rural telephone company to preserve universal service, protect public safety and welfare, ensure quality of service and protect consumers.  For instance, our Illinois rural telephone company must file tariffs setting forth the terms, conditions,

15

with the new law.  Although we have franchise agreements for cable and video services in all the towns we serve, this statewide franchising authority will simplify the process in the future.  In July 2016, we notified the ILCC and the municipalities with which we have cable and video franchise agreements that we will be filing with the ILCC for statewide franchising authority in 2017.  In 2010, the Illinois General Assembly passed Public Act 96-0927, which updates the telecommunications statute, allowing ILECs, beginning January 1, 2011, to elect deregulation of local services.  To date, ICTC has not made an election to deregulate its local services.The Governor of Illinois signed the bill into law on June 15, 2010.  CCIL elected this option effective April 1, 2014.  Under this option, an ILEC’sCCIL’s rates for local services would becomebecame “competitive” and no longer subject to rate of return regulation, and certain other service quality obligations would beare reduced.  The electing ILECs would have obligationsCCIL is obligated to make certain basic local exchange service packages available to customers.  Public Act 96-0927 also specified that local exchange carriers may not charge intrastate access rates at levels higher than their interstate access rates.  The Governor of Illinois signed the bill into law on June 15, 2010.  In June 2013, the Illinois legislature approved additional amendments to the telecommunications statute.  The new telecommunications legislation mademaking minor changes to the telecommunications statute.  The current telecommunications statute is currently scheduled to sunset July 1, 2015.2017.

Texas

Our Texas rural telephone companies are each certified by the PUCT to provide local telephone services in their respective territories.  In addition, our Texas long-distance and transport subsidiaries are registered with the PUCT as interexchange carriers.  The transport subsidiary has also has obtained a service provider certificate of operating authority (“SPCOA”) to better assist the transport subsidiary with its operations in municipal areas.  Recently, to assist with expanding services offerings, Consolidated Communications Enterprise Services, Inc.CCES also obtained a SPCOA from the PUCT.  While our Texas rural telephone company services are extensively regulated, our other services, such as long-distance and transport services, are not subject to any significant state regulation.

Our Texas rural telephone companies operate as distinct companies from a regulatory standpoint.  Each is separately regulated by the PUCT in order to preserve universal service, protect public safety and welfare, ensure quality of service and protect consumers.  Each Texas rural telephone company must file and maintain tariffs setting forth the terms, conditions and prices for its intrastate services.

Currently, both of our Texas rural telephone companies have immunity from adjustments to their rates, including their intrastate network access rates, because they elected “incentive regulation” under the Texas Public Utilities Regulatory Act (“PURA”).  In order to qualify for incentive regulation, our rural telephone companies agreed to fulfill certain infrastructure requirements.  In exchange, they are not subject to challenge by the PUCT regarding their rates, overall revenues, return on invested capital or net income.

PURA prescribes two different forms of incentive regulation in Chapter 58 and Chapter 59.  Under either election, the rates, including network access rates, an incumbent telephone company may charge for basic local services generally cannot be increased from the amount(s) on the date of election without PUCT approval.  Even with PUCT approval, increases can only occur in very specific situations.  Pricing flexibility under Chapter 59 is extremely

16

rural areas.  The Texas Universal Service Fund is also used to reimburse telecommunications providers for revenues lost for providing lifeline service.  Our Texas rural telephone companies receive disbursements from this fund.  Our Texas ILECs receive two state funds, the small and rural incumbent local exchange company plan High Cost Fund (“HCF”) and the high cost assistance fund (“HCAF”).  The HCF is a line-based fund used to keep local rates low.  The rate is applied on all residential lines and up to five single business lines.  The amount we receive from the HCAF is a frozen monthly amount that was originally developed to offset high intrastate toll rates.

In 2011, the Texas legislature passed Senate Bill 985 which requires the PUCT to review the large and small company Texas Universal Service Funds in 2012 and report back to the legislature by January 2013.  The PUCT began a series of dockets in 2012 reviewing the Texas universal service high cost fund programs, for both large and small companies.  The large company dockets were settled in late 2012.  The small company dockets will not be reviewed until after the 2013 legislative session has been completed.  We expect that any impact from these proceedings will most likely occur in 2014.

In September 2011, the Texas state legislature passed Senate Bill No. 980/House Bill No. 2603 which, among other things, mandated the PUCT to review the Universal Service Fund and issue recommendations by January 1, 2013 with the intent to effectively eliminatereduce the HCF.size of the Universal Service Fund.  This would be accomplished by implementing an urban floor to offset state funding reductions with a phase-in period of four years.  The PUCT recommended that (i) frozen line counts be lifted effective September 1, 2013 and (ii) rural and urban local rate benchmarks be developed.  The large company fund review was completed in September 2012 and the PUCT addressed the small company fund participants in Docket No. 41097 Rate Rebalancing (“Docket 41097”), as discussed below.

In June 2013, the Texas state legislature passed Senate Bill No. 583 (“SB 583”).  The provisions of SB 583 were effective September 1, 2013 and froze HCF and HCAF support for the remainder of 2013 and will eliminate2013.  As of January 1, 2014, our annual $1.4 million HCAF support effective January 1, 2014.was eliminated and the frozen HCF support returned to funding on a per line basis.  In July 2013, the Company entered into a settlement agreement with the PUCT on Docket 41097, which was approved by the PUCT onin August 30, 2013.  In accordance with the provisions of the settlement agreement, ourthe HCF draw will be reduced by approximately $1.2 million annually or approximately $4.8 million in total, over a 4four year period beginning June 1, 2014 through 2017.2018.  However, we have the ability to fully offset this reduction with increases to residential rates where market conditions will allow.

In addition, the PUCT is required to develop a needs test for post-2017 funding and has held workshops on various proposals.  The PUCT issued its recommendation to the Texas state commissioners in May 2014, which was approved in December 2014.  The needs test allows for a one-time disaggregation of line rates from a per line flat rate, and then a competitive test must be met to receive funding.  The Company filed its submission for the needs test on December 28, 2016.  The PUCT issued docket 46699 on January 4, 2017 to review the filing and a decision is expected in the second quarter of 2017.

Pennsylvania

The Pennsylvania Public Utilities Commission (“PAPUC”) regulates the rates, the system of financial accounts for reporting purposes and certain aspects of service quality, billing procedures and universal service funding, among other things, related to our rural telephone company and CLEC’s provision of intrastate services.  In addition, the PAPUC sets the rates and terms for interconnection between carriers within the guidelines ordered by the FCC.  

17

Minnesota Public Utilities Commission (“MPUC”).  Due to the size of our ILEC companies, the MPUC does not regulate our rates of return or profits.  In Minnesota, regulators monitor CCMN and CCMC price and service levels.

Local Government Authorizations

In Illinois,the various states we historically have been required to obtain franchises from each incorporated municipalityoperate in, we operate under a structure in which our rural telephone company operates.  An Illinois state statute prescribes theeach municipality or other regulatory agencies may impose various fees, that a municipality may imposesuch as for the privilege of originating and terminating messages and placing facilities within the municipality.  Our Illinois telephone operations may also be required to obtainmunicipality, for obtaining permits for street opening and construction, and/or for operating franchises to install and expand fiber optic facilities. These permits or other licenses or agreements typically require the payment of fees.

Similarly, Texas incumbent telephone companies had historically been required to obtain franchises from each incorporated municipality in which they operated.  Texas law now provides that incumbent telephone companies do not need to obtain franchises or other licenses to use municipal rights-of-way for delivering services.  Instead, payments to municipalities for rights-of-way are administered through the PUCT and through a reporting process by each telecommunications provider.  Incumbent telephone companies are still required to obtain permits from municipal authorities for street opening and construction, but most burdens of obtaining municipal authorizations for access to rights-of-way have been streamlined or removed.

Our Texas rural telephone companies still operate pursuant to the terms of municipal franchise agreements in some territories served by Consolidated Communications of Fort Bend Company.  As the franchises expire, they are not being renewed.

Like Illinois, California and Pennsylvania operates under a structure in which each municipality may impose various fees.

Regulation of Broadband and Internet Services

Video Services

Our cable television subsidiaries each require a state or local franchise or other authorization in order to provide cable service to customers. Each of these subsidiaries is subject to regulation under a framework that exists in Title VI of the Communications Act.

Under this framework, the responsibilities and obligations of franchising bodies and cable operators have been carefully defined.  The law addresses such issues as the use of local streets and rights of way; the carriage of public, educational and governmental channels; the provision of channel space for leased commercial access; the amount and payment of franchise fees; consumer protection;protection and similar issues.  In addition, Federal laws place limits on the common ownership of cable systems and competing multichannel video distribution systems, and on the common ownership of cable systems and local telephone systems in the same geographic area.  Many provisions of the Federalfederal law have been implemented through FCC regulations.  The FCC has expanded its oversight and regulation of the cable television-related matters recently.  In some cases, it has acted to assure that new competitors in the cable television business are able to gain access to potential customers and can also obtain licenses to carry certain types of video programming.

The Communications Act also authorizes the licensing and operation of open video systems (“OVS”). An OVS is a form of multichannel video delivery that was initially intended to accommodate unaffiliated providers of video programming on the same network.  The OVS regulatory structure also offered a means for a single provider to serve less than an entire community.  Our Kansas City operations in Missouri utilize an OVS that allows us to operate in only a part of Kansas City.

18

each of its markets.  As anticipated, fees under retransmission consent agreements generally underwent marked increases for the 2012-20142015 through 2017 period.

Federal law and regulationregulations regulate access to certain programming content that is delivered by satellite. The FCC has provisions in place tothat ban certain discriminatory practices and unfair acts, and include a presumption that the withholding of regional sports programming by content affiliates of incumbent cable operators is presumptively unlawful. The existing FCC complaint process for program access for both satellite and terrestrially-delivered content is governed on a case-by-case basis.  The FCC currently is considering adopting rules that could make it less burdensome for competing multichannel video programming providers who are denied access to cable-affiliated satellite programming on reasonable terms and conditions to pursue and meet evidentiary standards with respect to program access complaints.  ThatThis proceeding remains pending before the FCC.

The FCC recently adopted an order banning exclusive contracts between affiliates where the programming is sent via terrestrial media, and banning certain other unfair acts, making it clear that the withholding of regional sports programming and high definition television programming by content affiliates of incumbent cable operators would receive special attention.  Unlike the satellite provisions, the new rules will not expire. The FCC’s order was upheld in an appeals court decision issued on March 12, 2010.

In connection with the FCC’s approval of a cable transaction involving Comcast and Time Warner in July 2006, the parties’ regional sports networks were subject to certain program access rules until July 2012.  The FCC did not extend these obligations beyond July 2012.  This does not change the existing Comcast/NBC Universal merger conditions which expire in 2018, as described below. It is unknown what, if any, impact this decision will have on us.

In early 2010, Comcast proposed to enter into a joint venture with NBC Universal, through which it would acquire control of numerous NBC properties, including both broadcast and cable television programming operations of NBC.  In early 2011, the FCC and the Department of Justice (“DOJ”) approved the transaction, with a significant number of conditions designed to promote programming diversity, to limit the ability of the combined entity to affect competition adversely, and to protect newly emerging markets such as independent on-line (“over-the-top”)OTT video. These conditions include requirements for program access and carriage, non-discrimination in making programming available, limits on bundling that would affect competition and the relationship of the joint venture to emerging on-line competition.  In addition, conditions were imposed to maintain independence within the NBC unit in dealing with competing cable operators.  The parties agreed to the conditions and the transaction was completed during 2011.  Most of the conditions will have a duration of seven years.

The contractual relationships between cable operators and most providers of content who are not television broadcast stations generally are not subject to FCC oversight or other regulation.  The majority of providers of

19

framework.  California has elected to separately regulate pole attachments and pole attachment rates.  The FCC decision has been appealed, and the ultimate outcome of the appeal cannot be predicted.

Cable operators are subject to longstanding cable copyright obligations where they pay copyright fees for some types of programming that are considered secondary retransmissions.  The copyright fees are updated from time to time, and are paid into a pool administered by the United States Copyright Office for distribution to qualifying recipients.

The FCC has so far declined to require that cable operators allow unaffiliated Internet service providers to gain access to customers by using the network of the operator’s cable system. The FCC also has considered the benefits of a requirement that cable operators offer programming on their systems on an a la carte or themed basis, but to date has not adopted regulations requiring such action.  These matters may resurface in the future, particularly as the “over-the-top”OTT market grows.  In light of the fact that programming is increasingly being made available through Internet connections, some cable operators have considered their own a la carte alternatives.  Content owners with linear channels also are moving towardcontinue to provide greater “on demand” programming and offerings that maintain the value of their linear channels for customers.

The outcome of pending matters cannot be determined at this time but can lead to increased costs for the Company in connection with our provision of cable services and can affect our ability to compete in the markets we serve.

Internet Services

The provision of Internet access services is not significantly regulated by either the FCC or the state commissions.  However, the FCC has been moving toward the imposition of some controls on the provision of Internet access. In 2002, in part to place cable modem service and Digital Subscriber Line (“DSL”) service on an equal competitive footing, the FCC asserted jurisdiction over these services as “information services” under Title I of the Communications Act, and removed them from treatment under Title II of the Act, but to date it has not determined what regulatory framework, if any, is appropriate for Internet services under Title I.

The FCC has also adopted policy principles to signal its objectives with respect to high speedhigh-speed Internet and related services.  These principles are intended to encourage broad customer access to the content and applications of their

20

Item 1A.  Risk Factors.

Our operations and financial results are subject to various risks and uncertainties, including but not limited to those described below, that could adversely affect our business, financial condition, results of operations, cash flows and the trading price of our common stock.

Risks Relating to Current Economic Conditions

Unfavorable changes in financial markets could adversely affect pension plan investments resulting in material funding requirements to meet our pension obligations.  We expect that we will continue to make future cash contributions to our pension plans, the amount and timing of which will depend on various factors including funding regulations, future investment performance, changes in future discount rates and changes in participant demographics.  Our pension plans have investments in marketable securities, including marketable debt and equity securities, whose values are exposed to changes in the financial markets.  Returns generated on plan assets have historically funded a large portion of the benefits paid under these plans.  If the financial markets experience a downturn and returns fall below the estimated long-term rate of return, our future funding requirements could increase significantly, which could adversely affect cash flows from operations.

Weak economic conditions may have a negative impact on our business, results of operations and financial condition. Downturns in the economic conditions in the markets and industries we serve could adversely affect demand for our products and services and have a negative impact on our results of operations.  Economic weakness or uncertainty may make it difficult for us to obtain new customers and may cause our existing customers to reduce or discontinue their services to which they subscribe.  This risk may be worsened by the expanded availability of free or lower cost services, such as video over the Internet, or substitute services, such as wireless phones and data devices.  Weak economic conditions may also impact the ability of third parties to satisfy their obligations to us.  If weak economic conditions were to continue or further deteriorate, the growth of our business, results of operations and financial condition may be adversely affected.

Risks Relating to Our Common Stock and Payment of Dividends

Our Board of Directors could, in its discretion, depart from or change our dividend policy at any time. Our Board of Directors maintains a current dividend practice for the payment of quarterly dividends at an annual rate of approximately $1.55 per share of common stock.  We are not required to pay dividends and our stockholders do not have contractual or other legal rights to receive them.  Our Board of Directors may decide at any time, in its discretion, to decrease the amount of dividends, change or revoke the dividend policy, or discontinue paying dividends entirely. Our ability to pay dividends is dependent on our earnings, capital requirements, financial condition, expected cash needs, debt covenant compliance and other factors considered relevant by our Board of Directors. If we do not pay dividends, for whatever reason, shares of our common stock could become less liquid and the market price of our common stock could decline.

21

New technologies, particularly alternative methods for the distribution, access and viewing of content, have been, and will likely continue to be, developed that will further increase the number of competitors that we face and drive changes in consumer behavior.  Consumers seek more control over when, where and how they consume content and are increasingly interested in communication services outside of the home and in newer services in wireless Internet technology and devices such as tablets, smartphones and mobile wireless routers that connect to such devices.  These new technologies, distribution platforms and consumer behaviorbehaviors may have a negative impact on our business.

In addition, evolving technologies can reduce the costs of entry for others, resulting in greater competition and give competitors significant new advantages.advantages to competitors.  Technological developments could require us to make a significant new capital investment in order to remain competitive with other service providers.  If we do not replace or upgrade our network and its technology once it becomes obsolete, we will not be unableable to compete effectively and will likely lose customers.  We also may be placed at a cost disadvantage in offering our services. Technology changes are also allowing individuals to bypass telephone companies and cable operators entirely to make and receive calls, and to provide for the distribution and viewing of video programming without the need to subscribe to traditional voice and

24

Limited Partnership (“RSA 6(I)”) and 23.67% of Pennsylvania RSA 6(II) Limited Partnership (“RSA 6(II)”).  RSA #17 provides cellular service to a limited rural area in Texas.  RSA 6(I) and RSA 6(II) provide cellular service in and around our Pennsylvania service territory.

In 2013, 20122016, 2015 and 2011,2014, we received cash distributions from these partnerships of $34.8$32.1 million, $29.1$45.3 million and $28.3$34.6 million, respectively.  The cash distributions we receive from these partnerships are based on our percentage of ownership and the partnerships’ operating results, cash availability and financing needs, as determined by the General Partner at the date of the distribution.  We cannot control the timing, dollar amount or certainty of any future cash distributions from these partnerships.  In the absence of the receipt ofIf cash distributions from these partnerships decrease or end in the future, our results of operations could be adversely affected, and as a result, we may be unable to fulfill our long-term obligations or our ability to pay cash dividends to our shareholders may be restricted. If we do not receive cash distributions from these partnerships in the future, or if the cash distributions decrease in amount, our results of operations could be adversely affected.

A disruption in our networks and infrastructure could cause delays or interruptions of service, which could cause us to lose customers and incur additional expenses.   Our customers depend on reliable service over our network.  The primary risks to our network infrastructure include physical damage to lines, security breaches, capacity limitations, power surges or outages, software defects and disruptions beyond our control, such as natural disasters and acts of terrorism.  From time to time in the ordinary course of business, we will experience short disruptions in our service due to factors such as physical damage, inclement weather and service failures of our third party service providers.  We could experience more significant disruptions in the future.  Disruptions may cause interruptions in service or reduced capacity for customers, either of which could cause us to lose customers and incur unexpected expenses.

25

If we cannot obtain and maintain necessary rights-of-way for our network, our operations may be interrupted and we would likely face increased costs.  We are dependent on easements, franchises and licenses from various private parties, such as established telephone companies and other utilities, railroads and long-distance companies, and from state highway authorities, local governments and transit authorities for access to aerial pole space, underground conduits and other rights-of-way in order to construct and operate our networks.  Some agreements relating to rights-of-way may be short-term or revocable at will, and we cannot be certain that we will continue to have access to existing rights-of-way after the governing agreements are terminated or expire.  If any of our right-of-way agreements were terminated or could not be renewed, we may be forced to remove our network facilities from the affected areas, relocate or abandon our networks, which would interrupt our operations, and force us to find alternative rights-of-way and makeincur unexpected capital expenditures.

Our ability to retain certain key management personnel and attract and retain highly qualified management and other personnel in the future could have an adverse effect on our business.  We rely on the talents and efforts of key management personnel, many of whom have been with our company and in our industry for decades.  While we maintain long-term and emergency transition plans for key management personnel and believe we could either identify internal candidates or attract outside candidates to fill any vacancy created by the loss of any key management personnel, the loss of one or more of our key management personnel and the ability to attract and retain highly qualified technical and management personnel in the future could have a negative impact on our business, financial condition and results of operations.

Future acquisitions could be expensive and may not be successful.  From time to time, we make acquisitions and investments and enter into other strategic transactions.  In connection with these types of transactions, we may incur unanticipated expenses,expenses; fail to realize anticipated benefits,benefits; have difficulty incorporating the acquired businesses,businesses; disrupt relationships with current and new employees, customers and vendors,vendors; incur significant indebtedness or have to delay or not proceed with announced transactions.  The occurrence of any of the foregoing events could have a material adverse effect on our business, financial condition, results of operations and cash flowsflows.

Risks Relating to Our Merger with FairPoint

Obtaining required approvals and satisfying closing conditions may delay or prevent completion of the merger and/or result in the incurrence of additional costs.    The merger with FairPoint is currently expected to close by the middle of 2017, assuming that all of the conditions in the Merger Agreement are satisfied or waived.  Certain events may delay the completion of the merger or result in a termination of the Merger Agreement.  Some of these events are outside of our control.  Completion of the merger is conditioned upon our stockholder’s and FairPoint’s stockholders approval.  If the stockholders do not approve, the merger will not be consummated.  Completion of the merger is also conditioned upon, among other things, the receipt of certain governmental consents and regulatory approvals including approval by the FCC.  While Consolidated and FairPoint intend to pursue vigorously all required consents and approvals and do not know of any reason why they would not be able to obtain them in a timely manner, the requirement to obtain these consents and approvals prior to completion of the merger could jeopardize or delay the completion of the merger.  Further, these consents and approvals may impose conditions on or require divestitures relating to the divisions, operations or assets of Consolidated or FairPoint.  Such conditions or divestitures may further jeopardize or delay completion of the merger or may reduce the anticipated benefits of the merger.

No assurance can be given that the required consents and approvals will be obtained or that the required conditions to closing will be satisfied.  Even if all such consents and approvals are obtained, no assurance can be given as to the terms, conditions and timing of the consents and approvals or that they will satisfy the terms of the Merger Agreement.  If the merger is not completed by September 30, 2017, or such later date determined in accordance with the Merger Agreement, either FairPoint or Consolidated may terminate the Merger Agreement (provided that the party terminating the Merger Agreement has not materially contributed to the failure to fulfill any condition under the Merger Agreement).

We may incur significant additional costs and expenses in connection with any delay in completing the merger or the termination of the Merger Agreement, including costs under our committed debt financing arrangement to be used to partially fund the merger as well as significant additional transaction costs, including legal, financial advisory, accounting and other costs we have already incurred.  In addition, if the merger is not completed, we may be required to pay a termination fee of $18.9 million under certain circumstances as set forth in the Merger Agreement.

Completion of the merger, the failure to complete the merger and delays completing the merger could adversely affect the market price of our common stock.    Failure to complete the merger would prevent us from realizing the anticipated benefits of the merger.  We would also remain liable for significant transaction costs, including legal, accounting and financial condition.advisory fees.  Any delay in completing the merger may significantly reduce the synergies and other benefits that we expect to achieve if we successfully complete the merger within the expected timeframe and integrate the businesses.  In addition, the market price of our common stock may reflect various market assumptions as to whether and when the merger will be completed.  Consequently, the completion of, the failure to complete, or any delay in the completion of the merger could result in a significant adverse change in the market price of our common stock, particularly to the extent that the current market price reflects a market assumption that the merger will be completed.

Whether or not the merger is completed, the pendency of the transaction could cause disruptions in our business, which could have an adverse effect on our business and financial results.  The pendency of the merger could cause disruptions in our business, including, but not limited to, the following:

We will incur transaction, integration and restructuring costs in connection with the merger.  We expect to incur significant transaction costs in connection with the merger, including fees of our attorneys, accountants and financial advisors.  In addition, we will incur integration and restructuring costs following the completion of the merger as we integrate the businesses of FairPoint with those of the Company.  Although we expect that the realization of efficiencies related to the integration of the businesses will offset incremental transaction, integration and restructuring costs over time, we cannot give any assurance that this net benefit will be achieved in the near term.

26The integration of the Company and FairPoint following the merger may present significant challenges.  We may face significant challenges in combining FairPoint’s operations into our operations in a timely and efficient manner and in retaining key FairPoint personnel.  The failure to successfully integrate the Company and FairPoint and to manage successfully the challenges presented by the integration process may result in our not achieving the anticipated benefits of the merger, including operational and financial synergies.

Risks Relating to Current Economic Conditions

Unfavorable changes in financial markets could adversely affect pension plan investments resulting in material funding requirements to meet our pension obligations.  We expect that we will continue to make future cash contributions to our pension plans, the amount and timing of which will depend on various factors including funding regulations, future investment performance, changes in future discount rates and mortality tables and changes in participant demographics.  Unfavorable fluctuations or adverse changes in any of these factors, most of which are outside our control, could impact the funded status of the plans and increase future funding requirements.  Returns generated on plan assets have historically funded a large portion of the benefits paid under these plans.  If the financial markets experience a downturn and returns fall below the estimated long-term rate of return, our future funding requirements could increase significantly, which could adversely affect our cash flows from operations.

Weak economic conditions may have a negative impact on our business, results of operations and financial condition.  Downturns in the economic conditions in the markets and industries we serve could adversely affect demand for our products and services and have a negative impact on our results of operations.  Economic weakness or uncertainty may make it difficult for us to obtain new customers and may cause our existing customers to reduce or discontinue their services to which they subscribe.  This risk may be worsened by the expanded availability of free or lower cost services, such as video over the Internet, or substitute services, such as wireless phones and data devices.  Weak economic conditions may also impact the ability of third parties to satisfy their obligations to us.

Risks Relating to Our Common Stock and Payment of Dividends

Our Board of Directors could, at its discretion, depart from or change our dividend policy at any time.  Our Board of Directors maintains a current dividend practice for the payment of quarterly dividends at an annual rate of approximately $1.55 per share of common stock.  We are not required to pay dividends and our stockholders do not have contractual or other legal rights to receive them.  Our Board of Directors may decide at any time, in its discretion, to decrease the amount of dividends, change or revoke the dividend policy or discontinue paying dividends entirely.  Our ability to pay dividends is dependent on our earnings, capital requirements, financial condition, expected cash needs, debt covenant compliance and other factors considered relevant by our Board of Directors.  If we do not pay dividends, for whatever reason, shares of our common stock could become less liquid and the market price of our common stock could decline.

We might not have sufficient cash to maintain current dividend levels.  Our debt agreements, applicable state, legal and corporate law, regulatory requirements and other risk factors described in this section, could materially reduce the cash available from operations or significantly increase our capital expenditure requirements, and these outcomes could cause funds not to be available when needed in an amount sufficient to support our current dividend practice.

If we continue to pay dividends at the level currently anticipated under our dividend policy, our ability to pursue growth opportunities may be limited. Our dividend practice could limit, but not preclude, our ability to grow.  If we continue paying dividends at the level currently anticipated, we may not retain a sufficient amount of cash to fund a material expansion of our business, including any acquisitions or growth opportunities requiring significant and unexpected capital expenditures.  For that reason, our ability to pursue any material expansion of our business may depend on our ability to obtain third-party financing.  We cannot guarantee that such financing will be available to us on reasonable terms or at all.

Our organizational documents could limit or delay another party’s ability to acquire us and, therefore, could deprive our investors of a possible takeover premium for their shares.  A number of provisions in our amended and restated certificate of incorporation and bylaws will make it difficult for another company to acquire us.  Among other things, these provisions:

We also are subject to laws that may have a similar effect.  For example, federal, California, Illinois, Minnesota and Pennsylvania telecommunications laws and regulations generally prohibit a direct or indirect transfer of control over our business without prior regulatory approval.  Similarly, Section 203 of the Delaware General Corporation Law restricts our ability to engage in a business combination with an “interested stockholder”.  These laws and regulations make it difficult

for another company to acquire us, and therefore, could limit the price that investors might be willing to pay in the future for shares of our common stock.  In addition, the rights of our common stockholders will be subject to, and may be adversely affected by, the rights of holders of any class or series of preferred stock that we may issue in the future.

Risks Relating to Our Indebtedness and Our Capital Structure

We have a substantial amount of debt outstanding and may incur additional indebtedness in the future, which could restrict our ability to pay dividends and fund working capital and planned capital expenditures.  As of December 31, 2016, we had $1,388.8 million of debt outstanding.  Our substantial level of indebtedness could adversely impact our business, including:

We cannot guarantee that we will generate sufficient revenues to service our debt and have adequate funds left over to achieve or sustain profitability in our operations, meet our working capital and capital expenditure needs, compete successfully in our markets, or pay dividends to our stockholders.

Our credit agreement and the indentures governing our Senior Notes contain covenants that limit management’s discretion in operating our business and could prevent us from capitalizing on opportunities and taking other corporate actions.  Among other things, our credit agreement limits or restricts our ability (and the ability of certain of our subsidiaries), and the separate indentures governing the Senior Notes limit the ability of our subsidiary, Consolidated Communications, Inc., and its restricted subsidiaries to: incur additional debt and issue preferred stock; make restricted payments, including paying dividends on, redeeming, repurchasing or retiring our capital stock; make investments and prepay or redeem debt; enter into agreements restricting our subsidiaries’ ability to pay dividends, make loans or transfer assets to us; create liens; sell or otherwise dispose of assets, including capital stock of, or other ownership interests in subsidiaries; engage in transactions with affiliates; engage in sale and leaseback transactions; engage in a business other than telecommunications; and consolidate or merge.

In addition, our credit agreement requires us to comply with specified financial ratios, including ratios regarding total leverage and interest coverage.  Our ability to comply with these ratios may be affected by events beyond our control.  These restrictions limit our ability to plan for or react to market conditions, meet capital needs or otherwise constrain our activities or business plans.  They also may adversely affect our ability to finance our operations, enter into acquisitions or engage in other business activities that would be in our interest.

A breach of any of the covenants contained in our credit agreement, in any future credit agreement, or in the separate indentures governing the Senior Notes, or our inability to comply with the financial ratios could result in an event of default, which would allow the lenders to declare all borrowings outstanding to be due and payable.  If the amounts outstanding under our credit facilities were to be accelerated, we cannot assure that our assets would be sufficient to repay in full the money owed.  In such a situation, the lenders could foreclose on the assets and capital stock pledged to them.

We may not be able to refinance our existing debt if necessary, or we may only be able to do so at a higher interest expense.  We may be unable to refinance or renew our credit facilities and our failure to repay all amounts due on the maturity dates would cause a default under the credit agreement.  Alternatively, any renewal or refinancing may occur on less favorable terms.  If we refinance our credit facilities on terms that are less favorable to us than the terms of our existing debt, our interest expense may increase significantly, which could impact our results of operations and impair our ability to use our funds for other purposes, such as to pay dividends.

Our variable-rate debt subjects us to interest rate risk, which could impact our cost of borrowing and operating results.  Certain of our debt obligations are at variable rates of interest and expose us to interest rate risk.  Increases in interest rates could negatively impact our results of operations and operating cash flows.  We utilize interest rate swap agreements to convert a portion of our variable-rate debt to a fixed-rate basis.  However, we do not maintain interest rate hedging agreements for all of our variable-rate debt and our existing hedging agreements may not fully mitigate our interest rate risk, may prove disadvantageous or may create additional risks.  Changes in fair value of cash flow hedges that have been de-designated or determined to be ineffective are recognized in earnings.  Significant increases or decreases in the fair value of these cash flow hedges could cause favorable or adverse fluctuations in our results of operations.

Risks Related to the Regulation of Our Business

We are subject to a complex and uncertain regulatory environment, and we face compliance costs and restrictions greater than those of many of our competitors.  Our businesses are subject to regulation by the Federal Communications Commission (“FCC”) and other Federal,federal, state and local entities.  Rapid changes in technology and market conditions have required correspondingresulted in changes in how the government addresses telecommunications, video programming and Internet services.  Many businesses that compete with our ILECIncumbent Local Exchange Carrier (“ILEC”) and Non-ILECnon-ILEC subsidiaries are comparatively less regulated.  Some of our competitors are either completely free fromnot subject to utilities regulation or are regulated on asubject to significantly less burdensome basis.  Further, in comparisonfewer regulations.  In contrast to our subsidiaries regulated as cable operators and satellite video providers, competing on-demand and over-the-top videoOTT providers and motion picture and DVD firms have almost no regulation of their video activities.  Recently, Federalfederal and state authorities have become far more active in seeking to address critical issues in each of our product and service markets.  The adoption of new laws or regulations, or changes to the existing regulatory framework at the federal or state levelslevel, could require significant and costly adjustments andthat would adversely affect our business plans.  New regulations could impose additional costs or capital requirements, require new reporting, impair revenue opportunities, potentially impede our ability to provide services in a manner that would be attractive to our customers and us and potentially create barriers to enter new markets or to acquire new lines of business. We face continued regulatory uncertainty in the regulatory area for the immediate future.  Not only are these governmental entities continuing to move forward on these matters, their actions remain subject to reconsideration, appeal and legislative modification over an extended period of time, and it is unclear how their actions will ultimately will impact our markets.  We cannot predict future developments or changes to the regulatory environment or the impact such developments or changes may have on us.

We receive support from various funds established under federal and state lawlaws, and the continued receipt of that support is not assured.  A significant portion of our revenues come from network access and subsidies.  An order adopted by the FCC in 2011 (the “Order”) may significantly impactimpacts the amount of support revenue we receive from the Universal Service Fund (“USF”)/, Connect America Fund (“CAF”) and intercarrier compensation (“ICC”).  The Order reformed core parts of the USF, broadly recast the existing ICC scheme, and established the CAF to replace support revenues provided by the current USF and redirectsredirected support from voice services to broadband services.  In 2012, the first phase of the CAF funding was implemented, freezingwhich froze USF support to a price cap holding companycarriers until the FCC implementsimplemented a broadband cost model to shift support from voice serviceservices to broadband.  Initially, the second phase was anticipated to be implemented Julybroadband services.  See Part I – Item 1 2013.  It is now anticipated that the implementation will occur no sooner than July 1, 2014.  We anticipate that our revenues will be significantly impacted when the broadband cost model is implemented.  The order also modifies the methodology used– “Regulatory Environment” above for ICC traffic exchanged between carriers.  The initial phasestatistics of ICC reform was effective on July 1, 2012, beginning the transition of our terminating switched access rates to bill-and-keep over a seven year period.  As a result of implementing the provisions of the Order, our network access revenues decreased approximately $1.8 million during 2013.  We anticipate network access revenues will continue to decline as a result of the Order through 2018 by as much as $1.2 million, $1.0 million, $1.1 million, $2.4 million and $1.8 million in 2014, 2015, 2016, 2017 and 2018, respectively.current CAF funding levels.

The Order is currently subject to both reconsideration and appeal.  Further regulatory actions on these issues may have a material impact on our consolidated financial position and our results of operations in future periods.  The impact cannot be fully determined at this time.

We receive subsidy payments from various federal orand state universal service support programs.  These include high costprograms, including high-cost support, Lifeline Schools and LibrariesE-Rate programs within the Federal universal service program.  In addition, our Pennsylvaniafor schools and Texas ILEC’s receive state universal service funding.  The Pennsylvania PUC (“PAPUC”) issued an order in 2012 addressing state IC and USF, but rescinded the order in early 2012 due to the FCC order usurping the PAPUC rules.  In the future the PAPUC may reintroduce a universal service proceeding.  In Texas, the Public Utilities Commission of Texas (“PUCT”) initiated a proceeding to review the large company and small company high cost funds.  The proceedings undertook a comprehensive review of high cost funds and provided recommended changes to the legislature.  In June 2013, the Texas state legislature passed Senate Bill No. 583 (“SB 583”).  The provisions of SB 583 were effective September 1, 2013 and froze the small and rural incumbent local exchange company plan (“HCF”) and high cost assistance fund (“HCAF”) support for the remainder of 2013 and will eliminate our annual $1.4 million HCAF support, effective January 1, 2014.  In July 2013, the Company entered into a settlement agreement with the PUCT on Docket 41097, which was approved by the PUCT on August 30, 2013.  In accordance with the provisions of settlement agreement, our HCF draw will be reduced by approximately $1.2 million annually, or approximately $4.8 million in total, over a 4 year period beginning June 1, 2014 through 2017.

27

Internet.  At the federal level, the FCC intends to reclassify broadband Internet services as a telecommunications service subject to regulation under Title II of the Telecommunications Act of 1996, and in March 2015, the FCC released its net neutrality order, which applies to all wireline and wireless providers of broadband Internet services.  The net neutrality order addresses several areas that will be regulated and others that are subject to forbearance.  The regulations disallow blocking, throttling and paid prioritization by Internet service providers.  The net neutrality order also requires providers to disclose certain information to consumers regarding rates, fees, data allowances and packet loss.  Finally, it gives the FCC codified enforcement authority and it forbears on certain Title II regulations. 

We are subject to extensive laws and regulations relating to the protection of the environment, natural resources and worker health and safety.  Our operations and properties are subject to federal, state and local laws and regulations relating to the protection of the environment, natural resources and worker health and safety, including laws and regulations governing and creating liability in connection with the management, storage and disposal of hazardous materials, asbestos and petroleum products.  We are also are subject to laws and regulations governing air emissions from our fleets offleet vehicles.  As a result, we face several risks, including:

The cost of complying with environmental requirements could be significant.  Similarly, the adoption of new environmental laws or regulations, or changes in existing laws or regulations or their interpretations, could result in significant compliance costs or unanticipated environmental liabilities.

Our business may be impacted by new or changing tax laws or regulations and actions by federal, state, and/or local agencies, or by how judicial authorities apply tax laws.   Our operations are subject to various federal, state and local tax laws and regulations.   In connection with the products and services we sell, we calculate, collect, and remit various federal, state, and local taxes, surcharges and regulatory fees (“tax” or “taxes”) to numerous federal, state and local governmental authorities.  Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied.  In many cases, the application of tax laws are uncertain and subject to differing interpretations, especially when evaluated against new technologies and telecommunications services, such as broadband Internet access and cloud related services.    We cannot predict future changes to tax laws and regulations or the impact such changes may have on our business.

Item 1B.  Unresolved Staff Comments.

None.

Item 2.  Properties.

Our corporate headquarters are located at 121 S. 17th St.,Street, Mattoon, Illinois, a leased facility.  We also own and lease office facilities and related equipment for administrative personnel, central office buildings and operations in California, Illinois, Iowa, Kansas, Minnesota, Missouri, North Dakota, Pennsylvania Texas, California, Kansas and Missouri.  We own approximately 21 acres of undeveloped land in Roseville, California.Texas. 

In addition to land and structures, our property consists of equipment necessary for the provision of communication services, including central office equipment, customer premises equipment and connections, pole lines, video head-end, remote terminals, aerial and underground cable and wire facilities, vehicles, furniture and fixtures, computers and other equipment.  We also own certain other communications equipment held as inventory for sale or lease.

In addition to plant and equipment that we wholly-own, we utilize poles, towers and cable and conduit systems jointly-owned with other entities and lease space on facilities to other entities.  These arrangements are in accordance with written agreements customary in the industry.

We have appropriate easements, rights of wayrights-of-way and other arrangements for the accommodation of our pole lines, underground conduits, aerial and underground cables and wires.  See Note 11 into the Notes to Consolidated Financial Statementsconsolidated financial statements and Part II – Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information regarding our lease obligations.

As a result of efficiencies realized through cost controls and efficiencies gained through our acquisition of SureWest Communications in July 2012, certain of our owned and leased facilities are not being utilized to their full capacity.  We are actively reviewing all of our holdings to determine if we have excess properties.  As of December

28

Share Repurchases

During the quarter ended December 31, 2013,2016, we repurchased 46,27242,627 common shares surrendered by employees in the administration of employee share-based compensation plans.  The following table summarizes the share repurchase activity:

Performance Graph

The following graph shows a five-year comparison of cumulative total shareholder return of our common stock (assuming dividend reinvestment)reinvestment of dividends) with the S&P 500 index, the Dow Jones US Fixed-Line Telecommunications Subsector index and a customized peer group of four companies that includes:includes, in addition to us: Alaska Communications Systems Group, Inc., Consolidated Communications Holdings, Inc., Otelco, Inc. and Shenandoah Telecommunications Company.  The comparison of total return on investment (change in year-end stock price plus reinvested dividends) for each of the periods assumes that $100 was invested on December 31, 2008 respectively2011 in each index and in the peer group.  The stock performance shown on the graphs below is not necessarily indicative of future price performance.

31

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among Consolidated Communications Holdings, the S&P 500 Index, the Dow Jones US
Fixed Line Telecommunications Subsector Index,

and a Peer Group

Sale of Unregistered Securities

During the year ended December 31, 2013,2016, we did not sell any equity securities of the Company which were not registered under the Securities Act of 1933, as amended.

32